Strategy Models

1
Strategy Models

• Market Entry/Exit
• Shared Experience
• Portfolio Models

2
Strategy Process

• Three elements of strategy process
• Market opportunities/Business strength analyses
• Strategic marketing analyses
• Strategy generation and evaluation

3
A Marketing Oriented Approach to Strategy
Formulation and Evaluation
I. Market OpportunitiesBusiness Strength
Analysis
II. The Added Strategic Marketing Dimension
c. Segment by Positioning Analysis
b. Analysis of Business Strengths Weaknesses
d. Opportunities/Strengths of Each of the
Segments/Positionings
a. Analysis of Market Environmental
Opportunities and Threats
e. Synergy Analysis
j. Planning the Implementation Control Programs
f. Functional Requirement Analysis
i. Objectives Strategy EvaluationIncluding
the Marketing Program
g. Portfolio Analysis
h. Objective Strategy Generation Including
the Marketing Program
III. Objectives Strategy Generation
Evaluation Process
4
Choosing a Forecasting Method
Objective data available?
Judgmental method
No
Yes
New product situation?
New product methods (ch. 7)
Yes
No
Large changes in environment?
Extrapolation/Time Series methods
No
Yes
No
Good information on relationships?
Neural nets
No
Yes
No
Much data on causal variables?
Causal method
No
Yes
No
Major data problems?
Yes
5
Forecasting Methods

• Market Judgmental and Survey Time
  Causal Analysis Series Analyses
• Salesforce Buyer Naive methods Regression
  analysis composite intentions Moving
  averages Econometric modelsJury of
  executive Product tests Exponential Input-output
  opinion smoothing analysisDelphi
  methods Box-Jenkins MARMA method Neural
  networks Decompositional methods

6
Product Life Cycle
Sales
Sales and Profits ()
Profit
Introduction
Growth
Maturity
Decline
Time
7
Technology Substitution
Demand for Computing
Hand-Held Calculator Demand
Sales
Mechanical Calculator Demand
Abacus Demand
Time
8
Possible Business Strategies Guiding New Product
Development
High
Establish Foothold in New Market
Preempt Market Segment
Combat Major Competitive Entry
Offset Seasonal Cycle
Investment Level
Business Strategy
Increase Market Penetration
Utilize Excess Capacity
Capitalize on Existing Markets
Low
Source Booz Allen Hamilton Inc..
9
Life Cycles and Product Generations
Demand for Electronic Hand Calculators
Successive Generationsof ProductsP1, P2,
P3(smaller, faster, cheaper forms)
Sales
P1
P2
P3
Time
10
Federal ExpressProduct Life Cycle

• International

• Special handling
• Partsbank
• Europe/Asia

• Zapmail

• Up to 150 lbs.
• 1030 a.m. delivery
• Saturday service

• Market management
• Back to the mail room
• Adv. stress on reliability
• High share of high volume accounts

• Courier-Pak
• Overnight letter

• Panic purchase
• Exec/secretary
• Media advisor
• Pull

• P-1
• SAS

• System selling
• Mail room
• Account management
• Push

1972
1989
When it absolutely, positively has to be there
overnight
Take away our planes and wed be just like
anyone else
Why fool around with anyone else?
11
The Life Cycles ofGillette Razor Blades
K
J
I
H
Cum. Sales
G
F
E
C
D
B
A
1900
1990
1930
1940
1960
1970
1980
1994
12
The Learning Curveand Scale Economies
Repetition(as measured by an increase in
cumulative volume)
Growth(as measured by an increase in volume)
An Increase in Experience, Manifested as
Economies of Scale 1. Reducation of excess
capacity 2. Off-the-shelf scale-dependent
substitutions 3. Procurement economies
An Increase in Experience, Manifested as
Learning 1. Operator innovations 2. Management
innovations 3. Process innovations
Cost Reductions
13
A Price-Cost Relationship
Price
Unit Price and Cost
Cost
A
B
C
D
Total Accumulated Volume
14
New Product Successvs Entry Time
60
Original
50
40
First Year Market Share
30
Reformulated
20
10
0
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
Entry Delay Time (in months)
15
Decision Analysis

• Structuring the problem
• Assigning probability
• Assigning payoff
• Analyzing the problem

16
New Product IntroductionDecision Tree
Time Sequence of Events

• Consequences (1,000s)

84
Sales High (0.8)
54 C
Sales Low (0.2)
66
Make New Product
54D
Dont Make
16 C
16
No Sales (1.0)
84
Sales High (0.8)
Great Survey Results (0.3)
6 C
66
Sales Low (0.2)
Make New Product
6 D
8C
Good Survey Results(0.3)
16 C
Dont Make
16
No Sales (1.0)
84
Sales High (0.8)
Take Market Survey
Poor Survey Results (0.4)
51 C
66
Sales Low (0.2)
Make New Product
16 D
10D
16 C
Dont Make
16
No Sales (1.0)
100
Sales High (0.8)
10 C
No Market Survey
50
Sales Low (0.2)
Make New Product
10D
10C
No Additional Information (1.0)
0C
Dont Make
10
No Sales (1.0)
17
The Shared Experience ApproachPIMS

• The PIMS (profit impact of marketing strategy)
  project began in 1960 at the General Electric
  Company as an intra-firm analysis of the relative
  profitability of its businesses.
• Concept Pooled experiences from a diversity of
  successful and unsuccessful businesses will
  provide useful insights and guidance about the
  determinants of business profitability.
• Business refers to a strategic business unit,
  which is an operating unit selling a distinct set
  of products to an identifiable group of customers
  in competition with a well defined set of
  competitors.
• By mid 1980s (when data collection ended) the
  database of 100 data items per business included
  about 3,000 businesses from 450 participating
  firms.

18
Relative Quality, Market Share and
ProfitabilityPIMS
ROI ()
37
29
26
26
20
18
18
Large
16
28
10
Market Share
13
Superior
67
Small
33
Inferior
Relative Quality (percentile)
19
Some PIMS Principles

• Some market characteristics associated with high
  profitability
• A growing market
• Early life cycle
• High inflation
• Few suppliers
• Small purchase levels
• Low unionization
• High exports/low imports

• Some strategic factors associated with high
  profitability
• High market share
• Low relative costs
• High perceived quality
• Low capital intensity
• Intermediate level ofvertical integration

20
A PIMS LIM Report

• This Business Losers Winners ()
  () ()
• Actual ROI 18.0 5.9 26.2Cash
  flow/investment 3.0 1.3 4.7Total
  RD/sales 6.2 4.8 2.8Total
  marketing/sales 1.2 9.1 11.4Relative new
  products 0.0 3.7 2.6Fixed-capital
  intensity 44.0 57.0 33.1

21
McKinsey/GE Approach

• Two key strategic dimensions
• 1.Industry attractiveness
• 2.Business strength
• Decompose dimensions into key drivers
• Evaluate SBUs by driver
• Use map to drive strategy

22
The McKinsey/GE Business-Assessment Array

• Industry Attractiveness

BusinessStrengths
23
McKinsey/GE andCountry Entry for Ford Tractors
High
Increasing Attractiveness
Kenya
Argentina
Pakistan
Brazil

• Industry (Country) Attractiveness

Australia
New Zealand
Spain
Low
High
Low
Business Strength